I rebooted the whole system and tried again, this time attaching the webcam - same situation.
I noticed in xpmode device manager which I failed to notice before, that although the webcam is listed it stated that no drivers were installed. I then reopened xpmode, and installed the webcam xp latest drivers (note the the webcam video/audio work fine on both xp and W7 dual boot systems). I also checked that xpmode would shut down properly which it did.
I then ensured that Windows XP updates were fully installed first with a cold reboot after.
Step one was to update the vmc settings so thet memory and close down options were changed to 512mb and "shut down" respectively. It does seem to be about how xp mode installs extra drivers necessary to attach equipment that is not emulated in xp mode. I have started over in a controlled manner to see where the problems lie. I somehow doubt that this add-on will be ready for W7 October launch? Edit 2: I have now totally removed XP mode, as well as all files relating with the appdata folders. I am also having probs now in getting xp mode to shut down - it is hanging (I have changed the option to prompt) I am pulling my hair out with all these issues with XP mode - it is far from being a reliable option - it has a long way to go before I could recommend to clients as a stepping stone to W7. Edit: I notice in XP proper the webcam is listed in the device manager under imaging devices - maybe this is why xp mode is not recognising the webcam? I tried uninstalling the webcam in xpmode however this hangs. I hope this is useful feedback - I would appreciate some suggestions as to how these issues maybe resolved? Thank you. I have had huge probs with the XP mode, which I won't go into here as I have been able to fix most of them be starting from scratch again and again. I am unable to get xp mode to recognise the webcam or any options to use the mic, I do now get the terrible sb16 sound from the speakers but thats it. I tried the other options of turning the integration on/off, cold reboots etc, but I still have sound probs. Device manager shows 3 unknown devices (one I suspect is the pci modem, the others may be the pci usb card, and maybe the graphics card? I added the line as above in UI_Options to the vmc file - this had the benefit in control/panel sounds of giving sb16 mic/speaker options. I also have a philips SPC900NC/00 usb webcam/mic - show up in device manager under usb a/v composite device - loaded latest xp drivers into the xp mode okay, it requires attaching as a unidentified device. I have Q8400, GA-EP35C-DS3R, 2gb RAM, 320GB sata dual boot xp pro + W7 - bios virulisation enabled. Forget about installing interface cards and separate power supplies, because you don't need them any more.I have similar problems with xp virtulisation - rather than start a new thread, I would continue with this one as the probs are similar with sound/mic. Brilliant images and blazing colours, that's what you get with the SPC 900NC PC Camera. The Philips SPC 900NC PC Camera you have just purchased is manufactured to the highest standards and will give you years of trouble-free use.
Philips SPC900NC/00 Webcam - Use Manual - Use Guide PDF.